MANAGING COMPETITION
LOOKING FOR
GROWTH W
hat are the sources of 17 sectors during the two recent busi- gation bears out that execution and
corporate growth? If ness cycles (1984-93 and 1994-2003). market-share growth are secondary
you take a middle-of- We found that, first, top-line growth is drivers of corporate growth. Real
IN the-road view of mar-
kets, as many executives
do, the answers may surprise you: aver-
vital for survival: a company whose rev-
enue increased more slowly than GDP
was five times more likely to succumb
growth is driven by an intelligent and
granular approach to market segmen-
tation, and by an M&A strategy that
aging out the different growth rates in in the next cycle, usually through taps into the power of momentum in
ALL THE RIGHT
an industry’s segments and sub-seg- acquisition, than one that expanded selected segments.
ments can produce a misleading view more rapidly. For example, from 1999 to 2005,
of its growth prospects. Second, many companies with the compound annual growth rate of
Most so-called growth industries strong revenue growth and high 10 large European telecom com-
PLACES
include sub-industries or segments shareholder returns appeared to com- panies was 9.5 percent. In this sce-
that are not growing at all, while such pete in favorable growth environ- nario, market-share performance
relatively mature industries as Euro- ments, or industry micro-segments. accounted for -0.6 of the 9.5-percent
gain, while portfolio momentum was
responsible for 7.1 percent of the gain
and M&As achieved 3.0 percent of
A granular approach helps CEOs total growth (See Telco Growth Rates
chart, p. 40). Clearly, companies in
make sound choices about where the same sector grow not only at dif-
ferent speeds but in different ways, and
to compete. BY PATRICK VIGUERIE, SVEN selecting those ways can be a matter
of corporate life and death.
SMIT AND MEHRDAD BAGHAI The range of growth in European
telcos was between one and 25 per-
cent annually—a variation that can be
pean telecommunications often In addition, many of these companies mostly explained by individual port-
have segments that are growing rap- were active acquirers. folio choices and the resulting expo-
idly. Broad terms such as “growth Probing deeper into what really sure to segments with different rates
industry” and “mature industry,” while drives revenue growth, we’ve since of growth. Wireless grows faster than
time-honored and convenient, can disaggregated the recent growth his- fixed line, for example, and the growth
prove imprecise or even downright tory (1999-2005) of 200 large com- rates of each vary by country.
wrong upon closer analysis. panies around the world. The results In a nutshell, all industries have cer-
Our research on the revenue indicate that 80 percent of a com- tain growth rates in the aggregate yet
growth of large companies suggests pany’s growth is affected largely by significant variable single-company
that executives should “de-average” market expansion or contraction in growth performance. In a representa-
their view of markets and develop a the industry micro-segments where tive set of high-growth tech companies,
granular perspective on trends, future it competes, as well as by the revenue for example, growth rates varied from
growth rates and market structures. it gains through M&As. A third ele- -6 percent to 34 percent from 1999 to
Insights into sub-industries, segments, ment, whether a company gains or 2005. Such variation was present in all
categories and micro-markets are the loses market share, explains only industries studied, including construc-
building blocks of portfolio choice. some 20 percent of its growth. tion, consumer goods, energy, finan-
DORIANO SOLINAS/GETTYIMAGES.COM
At first blush, our findings seem cial services, high-tech and utilities.
Execution is Secondary counterintuitive, as great execution in What’s interesting is that across
A pair of unexpected findings emerged existing portfolio markets is typically industries, companies that outper-
when McKinsey & Company studied considered the key to achieving full formed on top-line growth and
100 of the largest U.S. corporations in growth potential. But further investi- shareholder value tended to do so in
CEO Magazine September/October 2008 41